“In 1940 and 1941 the economy was recovering smartly from the Depression, but in the latter year the recovery was becoming ambiguous, as substantial resources were diverted to war production. From 1942 to 1944 war production increased rapidly. Although there is no defensible way to place a value on the outpouring of munitions, its physical dimensions are awesome. From mid-1940 to mid-1945 munitions makers produced 86,338 tanks; 297,000 airplanes; 17,400,000 rifles, carbines, and sidearms; 315,000 pieces of field artillery and mortars; 4,200,000 tons of artillery shells; 41,400,000,000 rounds of small arms ammunition; 64,500 landing vessels; 6,500 other navy ships; 5,400 cargo ships and transports; and vast amounts of other munitions. Despite countless administrative mistakes, frustrations, and turf battles, the command economy worked. But, as always, a command economy can be said to work only in the sense that it turns out what the authorities demand. The U.S. economy did so in quantities sufficient to overwhelm enemy forces.” (Higgs 1992).That is correct.
But who is the author of this passage? Some “statist”?
It is none other than the libertarian Robert Higgs, who is cited ad nauseam by other libertarians, but I doubt whether many bother to cite this passage. (As an aside, I have a sneaking admiration for Higgs for reasons which I will perhaps explain in another post.)
Now once it is understood that command economies were mostly run on the basis of “planners’ sovereignty” and not “consumer sovereignty,” the debate about whether command economies “work” either in a theoretical and empirical sense becomes much more interesting than the tired and grossly exaggerated themes of Mises’s Socialist Calculation Debate.
Some command economies failed. Others have succeeded. The former communist states like the Soviet Union did not operate their economies on the principle of “consumer sovereignty.” These were command economies with production decisions by planners. If one assumes that the output of the command economy is planned by administrators by their own designs, then one will have to measure the success of their planning by whether the output produced did actually match their plans.
The Western command economies during WWII in America, Canada, the UK, Australia and New Zealand were very successful indeed: they more or less produced what was planned and won the war for Western democratic civilisation.
BIBLIOGRAPHY
Higgs, Robert. 1992. “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s,” Independent Institute, March 1
http://www.independent.org/newsroom/article.asp?id=138
Thanks. Perhaps there will be other historians, like Larry Schweikart Jr. and Burton W. Folsom Jr, that are going to be cited by the right 'libertarians'. Their latest, 'Obama's False History of Public Investment', (Source: http://online.wsj.com/article/SB10001424127887324635904578644233086643450.html ) can be found in the great bastion of supply side economics, The Wall Street Journal. Of course, there are those like Janeway, Sokloff, and Lamoreaux, who have discussed development as it really happened in the United States in 'Financing Innovation in the United States, 1870 to Present', as opposed to the faith based tale of 'Let the entrepreneurs decide what infrastructure the country needs, and most of the time they will build it themselves'
ReplyDeleteThe point is that for wealth and resources to be properly allocated towards productive uses that raise their standard of living and the wealth of society people have to make these decisions in the marketplace, government and its central planners can never efficiently or successfully do this.
ReplyDeleteYes, they made tanks, warplanes, and navy ships...but consumers were ultimately left without and lived a poorer life because of it..
The idea that a government can never successfully plan and deliver a good based on private demand for it is a blatant stupidity of Austrians and libertarians. E.g., just look at highly successful nationalised industries, post offices, universal health care systems in Western Europe and many other nations. Only brain washed people would say that governments have not delivered successful post office services for over a century in many nations.
DeleteAs to the success of total command economies, that is a different question, and their success in the real world has been mixed.
But since Keynesians do not advocate total command economies you're not scoring any points by arguing that the production of very many things -- like fashionable articles of consumption and so on -- are indeed best left to the private sector. Keynesians agree.
Of course they're 'highyl successful', but theyre not highly successful because of voluntary trade. They're highly successful because of government force, how can they not be highly successful when the only way for them to go out of business is by government legislation or the end of taxation. By these means any business can be 'highly successful' so you prove nothing...
DeleteIf theyre so successful why do they need government force, taxation, and legislation to even exist????
You're mostly just changing the issues here -- shifting the goal posts, which is a logical fallacy.
DeleteBut anyway:
(1) I and most people do not regard taxation as theft or an evil. It can be ethically justified under virtually any ethical theory you care to name (Kantian ethics, Rawls' human rights ethics, forms of consequentialism), particularly to deliver public goods like universal health care and public infrastructure.
It is also economically justified to deal with the "free rider" problem.
Force is the basis of any society that has laws. It would be the basis even of private law in Rothbard's fantasy world:
http://socialdemocracy21stcentury.blogspot.com/2013/06/coercion-is-basis-of-all-market.html
(2) Governments are perfectly capable of running profitable nationalised industries or services, so the issue of taxation is irrelevant there.
No goal posts have been shifted.
DeleteMy point is basically the one that Mises made in socialist calculation, how can you know whether or not the nationalized industry or services is highly successful, profitable, and really in demand and not just a massive misallocation of wealth and resources. There's no way you could know these things for certain, you could only assume them.
"My point is basically the one that Mises made in socialist calculation, how can you know whether or not the nationalized industry or services is highly successful, profitable, and really in demand and not just a massive misallocation of wealth and resources"
DeleteYou are apparently unaware of what Mises actually thought about nationalised industries:
http://socialdemocracy21stcentury.blogspot.com/2013/03/mises-on-mixed-economies-and-socialism.html
The key passage:
"If within a society based on private ownership by the means of production some of these means are publicly owned and operated—that is, owned and operated by the government or one of its agencies—this does not make for a mixed system which would combine socialism and capitalism. The fact that the state or municipalities own and operate some plants does not alter the characteristic features of the market economy. These publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them. They must strive for profits or, at least, to avoid losses. The government may cover losses of its plants or shops by drawing on public funds. But this neither eliminates nor mitigates the supremacy of the market; it merely shifts it to another sector. For the means for covering the losses must be raised by the imposition of taxes. But this taxation has its effects on the market and influences the economic structure according to the laws of the market. It is the operation of the market, and not the government collecting the taxes, that decides upon whom the incidence of the taxes falls and how they affect production and consumption. Thus the market, not a government bureau, determines the working of these publicly operated enterprises. "
Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar's Edition. Mises Institute, Auburn, Ala. pp. 259-260.
"The point is that for wealth and resources to be properly allocated towards productive uses that raise their standard of living and the wealth of society people have to make these decisions in the marketplace"
DeleteSuch a circular argument. Start with the unfounded assertion that unbridled markets are the best solution to all problems and always allocate resources in the best possible way, and then argue that because the state is not an unbridled market it can't allocate resources properly.
Right wing "libertarianism" is just a religion believed by particularly gullible people.
But, as always, a command economy can be said to work only in the sense that it turns out what the authorities demand
ReplyDeleteA shirt can be said to work only in the sense that you can wear it. A radio can be said to work only in the sense that it receives radio signals. In't this a logically vacuous statement?
The statement:
Delete"(1) command economy x worked in the sense of actually producing successfully what was planned"
could only be synthetic a posteriori, not some vacuous analytic truth, because its negation is perfectly possible, and its truth would be contingent, not necessary.
That was a great article by Higgs. I was an Austrian at the time I first read it, now I am Post-Keynesian but still that article is an influence on me. I focus a lot on private debt and its impact, and Higgs article still means alot to me as it proves the PK (!) point that gov must fill the void of investment and consumption in a slump, and that private dent is bad. WWII wiped out our private sector debt, and with that fresh slate: explosive sustained meaningful growth!
ReplyDeleteHiggs doesn't realise how some of his arguments support the Keynesian case.
DeleteEven "regime uncertainty" is a poor cousin to Keynesian uncertainty, the latter of which is the better concept because it includes uncertainty caused by the private sector itself.
the uncertianty
http://en.wikipedia.org/wiki/The_New_Industrial_State
ReplyDelete